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Emerging Markets

the outlook for india's elections

Modi operandi

April 2019

Venkatesh Sanjeevi, Senior Investment Manager, Prashant Kothari, Senior Investment Manager

India's general election shouldn't deliver big surprises. But even if it does, the country's outlook is bright.

As the drawn out process of India’s general election gathers steam, investors are watching closely for signs that the reform programmes of the past few years could be derailed. They (mostly) shouldn’t worry.

a one horse race?

Indian general election opinion poll results, number of parliamentary seats (polling forecast range, with poll of polls average highlighted.

india elections poll chart
Source: Reuters. Data as at 09.04.2019

Over six weeks, concluding with the declaration of results on 23 May, India’s election is expected to involve 900 million people and nearly a hundred political parties. Electronic voting machines are being transported to more than a million polling stations, in some cases on the backs of elephants. The scale of the endeavour hints at the complexity of the politics.

In a nutshell, opinion polls suggest that the National Democratic Alliance (NDA), led by Prime Minister Narendra Modi’s  Bharatiya Janata Party (BJP) is likely to remain be the biggest bloc in parliament. More of an issue is whether it wins an outright majority – the latest poll of polls points to 273 seats for NDA, one more than the 272 needed. By contrast, the Congress-led United Progressive Alliance (UPA) trails far behind (see chart).

What’s more, the BJP’s election odds have been improving. Increased government spending on rural districts and India’s recent military skirmishes with Pakistan have helped to shore up support, which had flagged under short-term growing pains as Modi’s reform programmes were put in place.

Anything less than an outright win for Modi’s alliance could well roil the markets in the wake of the elections. But we would see that as a buying opportunity. India’s long-term outlook remains positive and good quality companies should continue to grow.

That’s because most of the BJP’s reforms have become embedded deeply enough that they’re unlikely to be rolled back, even in the case of an upset win for the opposition Congress Party – which is generally less than enthusiastic about Modi’s programmes. Policies like the new bankruptcy code, reforms of the goods and sales tax, implementation of direct benefits transfers are all likely to stick.